MERS is back in the news - this time a NY bankruptcy judge says no...and maybe not in the future.

MERS (Mortgage Electronic Registration Systems) was set up by several major lenders to make the transfer of documents easier (and allegedly to bypass the slow system of filing docs in appropriate county records).  Under the agreements with members, MERS allegedly is their nominee (read as agent) and as such has the right to assign any mortgage of or to any of its members.

In the Eastern District of NY case In re: Ferrel L. Agard, Case No. 810-77338-reg, the court just granted a motion to MERS, but only on the basis that there was a prior foreclosure judgment that had not been challenged, and they could not review a state court's final judgment.  In their discussion, the Court determined MERS did not show it had the ability to assign a note or a mortgage, and that MERS had problems.

The court said that under NY state law, an agency relationship regarding real property cannot be created without an express writing.  It said the burden of proving an agency relationship exists is on MERS.  It further stated that although a Note and Mortgage normally run together, they may be separated - as they are by MERS own admission.  MERS admits that it is allegedly empowered to assign the mortgage, and the Note is transferred by the holders/members directly, thus separating the track of the documents.  To complicate things, MERS assigned the mortgage from the original lender to the final holder of the Note, thereby bypassing all the other holders of the Note in the chain of title.  This appeared to the court to be an invalid assignment, as the original lender had no interest in the note/mortgage at the time of the assignment.  The court's findings state that MERS did not have the right to assign a mortgage absent a written instruction to do so from the principal.

The court held that in every further case involving MERS the moving party must show they validly hold the note and the mortgage in order to have standing before the court.

MERS could be in big trouble.  It seems to me that every state's laws will include a provision that transfers of property MUST be in writing.  It also seems like most state's laws recognize that a note and mortgage run together, however creative attorneys in both bankruptcy and foreclosure will now be attacking MERS for their admitted separation of the documents.  I am also sure a lot of assignments will now be closely looked at by attorneys around the nation.

All I can say is that there could be rough times ahead for MERS who may hold a huge percentage of mortgages nationwide.